Leadership Challenges: Business Strategy, Layoffs, Culture Preservation, and Legal Issues
Due to the potential for stagflation, inflation, and economic difficulties, businesses today are facing increased levels of layoffs. Below we examine how business leaders can lead their organizations through seasons of current and potential layoffs with strategy, feeling, and legality.
Inflation and stagflation as potential indicators of layoffs
As previously discussed on Episode #1083 of the Arete Coach Podcast, “Surviving Economic Tsunamis,” leading factors negatively affecting the global economy include the current rate of “inflation” and the risk of “stagflation.” These economic changes have influenced the spending habits of consumers, negatively impacting a variety of industries. According to Business Insider, “Layoffs are sweeping across American businesses in 2022” and seem to “stem from slower business growth, paired with rising labor costs” (Hartmans, 2022). Consider the following businesses and their response to reduced consumer spending and economic challenges:
Tesla laid 229 people off. Elon Musk explains, “he had a ‘super bad feeling’ about the economy.”
Coinbase (a “crypto exchange platform”) reduced staff by 18% “to ensure” they “stay healthy during this economic downturn.”
Peloton let go of 2,800 employees, “including 20% of its corporate workforce,” due to an “ongoing downturn in the company’s business.”
Netflix had its “second round of layoffs in 2022” in May, letting go of 150 employees due to “slowing revenue growth”
A variety of real estate companies like Re/Max, JPMorgan’s “home-lending department,” and Wells Fargo’s “mortgage-related” divisions are conducting layoffs.
A call to prepare
As seen in the examples above, no business is immune to the potential need for layoffs. In an article published by the Society of Human Resource Management (SHRM), Phyllis Hartman SHRM-SCP and President of PGHR Consulting, is quoted as saying “organizations should always be prepared for layoffs” (Bergeron, 2022). When considering layoffs, leaders should think about the jobs they are saving, not the jobs being lost in a layoff. Sometimes trying to keep all people in the life boat causes it to sink. Today’s business leaders are wise to take heed to the changing economic tides and layoff indicators of other industries by planning how they will conduct layoffs if needed. In the words of Benjamin Franklin: “If you fail to plan, you plan to fail.”
“If you fail to plan, you plan to fail.” - Benjamin Franklin
Leading with strategy
It is important to plan before there is a need for layoffs, consider employee performance, and examine the value of all positions. Consider the following when strategizing a layoff.
Make your plan before it’s needed. Planning for a layoff when there is no need to act on it is beneficial for a variety of reasons.
First, you avoid the potential of making poor decisions due to emotional strain. Joshua Margolis, a professor at Harvard Business School, stated that layoffs during the COVID-19 pandemic were “emotionally and cognitively overwhelming” (Knight, 2020). While this statement was made in 2020, it still rings true today as other COVID-19 variants and political challenges (such as the Ukraine Russia war) have added increased stress to employees and employers.
Secondly, a planned layoff response can be acted on quickly when needed, reducing financial loss.
Lastly, having an appropriate layoff strategy can avoid “bad layoffs” which produce “bad publicity.” SHRM recommends giving “ample time to properly prepare documents, system updates, payroll, and severance calculations” (Bergeron, 2022). Planning ahead can buy business leaders and their employees this valuable time.
Consider employee performace. When creating your layoff strategy, SHRM advocates looking “first at underperforming employees.” According to Melanie French, Managing Principle at DLP Captial, “Every organization should be able to identify its bottom 10 percent of performers at any time… This is the best place to start when facing a declining economy and potential headcount reductions” (Bergeron, 2022).
Examine the value of all positions. SHRM recommends asking the following questions about each position within an organization, including executive and leadership positions. By asking these questions about every position within an organization, business leaders can examine which areas of their organization would have the least negative impact on their organization upon removal. Asking these questions can also reveal areas of financial waste that can be saved.
Does it make us money?
Does it contribute to employee engagement?
Does it help to define or drive customers to our business? (Bergeron, 2022)
Create a post-layoff plan. After layoffs have been conducted, what will your business offer to employees who have been let go? Will managers and executives offer to give references for laid-off employees? What support will be offered to employees between their announcement of being laid off and their last day of work? For employees who remain employed, how will your business leaders address rumors and ease any potential fears within the workplace (Knight, 2020)? After economic hardship when hiring increases, will laid-off employees take precedence over outside job applicants? Asking these questions now can help business leaders lead with clarity of what the future at their company will look like for employees and executives alike.
Leading with feeling
Conducting layoffs can create feelings of anxiety, guilt, stress, and other negative emotions in business leaders. Layoffs can also have a variety of negative effects on employees who are laid off including financial instability, “anxiety,” “anger,” “sadness,” “fear,” “fatigue,” “headaches,” and even “sleep disturbance” (Stanford, n.d.). Knowing that these responses to being laid off are commonplace, it is important for business leaders to not only lead with clarity but also with feeling and humanness. In BusinesSolver’s “2022 State of Workplace Empathy Executive Summary,” they share that only 69% of employees believe their organization’s chief executive is “empathetic” and 77% of CEOs “worry that they will lose respect if they’re too empathetic” (BusinesSolver, 2022). However, the Harvard Business Review recommends conducting layoffs with “compassion” (Knight, 2020). They give the following recommendations for leaders facing layoffs:
“Understand your limitations.” Are a majority of your employees remotely employed? If so, it can be difficult to get a private moment with them if they are working from home. If this is the case, it is important to indicate the importance of privacy when informing an employee about their loss of employment. Asking them “is there a time when I can get 15 minutes of your full attention?” can be beneficial.
Set the tone. When conducting layoffs both in-person and virtually, it is important to treat employees with “dignity, fairness, and respect.” It is recommended that those conducting layoffs “engage” with their emotions in a “calm and low-key manner” without completely detaching from feelings. Use your emotions, but don’t let them overtake the conversation. Avoid self-focused phrases such as “this is really hard for me” and remain present and attentive to your employee and their needs.
Clarity is key. “Be direct” but also “be human.” When sharing news of layoffs be “clear, concise, and unequivocal.” A straightforward and clear message may seem cold, but “it allows the other person to process what you’re saying.” When doing this, an explanation about economic conditions and gratitude for hard work can also be given. Clarity is also beneficial for those who are remaining employed amidst layoffs. Being clear about why layoffs are happening, the future of the organization, and combatting negative workplace rumors can offer employees a greater sense of clarity regarding their own future.
Offer assistance, but don’t overpromise. Go back to your layoff strategy and reexamine what assistance you will be offering to employees who are laid off and those who are staying with the company. Harvard Business Review recommends remaining available to employees after breaking any news of layoffs because individuals “may need time to process the news and may have questions” later. However, don’t make promises you can’t keep. If you do not have a plan for rehiring laid-off employees don’t say “as things get clearer, and the economy improves, you’re on our list to come back.”
Find a place to vent. “Find someone else you can talk to” about the struggles and stress of layoffs. However, “be selective and cautious about how much stress and emotion you show to your team”. The person you vent to might be a peer, mentor, colleague, therapist, coach, or family member. But find what works best for you and is healthy for your relationships both inside and outside the workplace.
Focus on your wellbeing. Due to the stress and emotional weight of layoffs, it is important to take a moment to focus on your own wellbeing. Exercise, a healthy diet, hobbies, time away from work, self-care, family time, and other things are great ways to keep yourself physically and mentally healthy during stressful times (Knight, 2020).
Leading with legality
At Arete Coach, we do not offer legal advice and encourage all readers to consult their legal professionals with the following information. When leading a business, it is important to remain aware of the legal guidelines surrounding layoffs. Consider the following insights when consulting with your legal counsel.
The WARN Act. The WARN Act stands for the “Worker Adjustment and Retraining Notification Act”. This federal act requires “most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs.” According to the U.S. Department of Labor, this generally does not include “counting those who have worked less than six months in the last 12 months and those who work an average of less than 20 hours a week.” They also state that “employees entitled to notice under WARN include managers and supervisors, as well as hourly and salaried workers. WARN requires that notice also be given to employees' representatives, the local chief elected official, and the state dislocated worker unit.”
The WARN Act and COVID-19. While the Department of Labor states that “WARN makes certain exceptions to the requirements when layoffs occur due to unforeseeable business circumstances, faltering companies, and natural disasters,” SHRM warns that, “on June 15th, a federal appellate court ruled that the COVID-19 pandemic is not a natural disaster that would relieve employers of their duty to give adequate warning before mass layoffs” (Shepherd, 2022).
The WARN Act, State Law, and Remote Work. According to the U.S. Department of Labor, “some states also have their own plant closure laws.” Because of this, they recommend that employers considering layoffs contact the State Dislocated Worker Unit for “more information on notice requirements in their state.” The differences between state legislation can be concerning for employers with a remote workforce located in a variety of different areas. However, SHRM states that “The U.S. Department of Labor's guidance states that such workers should be counted as part of the worksite from which their work is” (Shepherd, 2022). Therefore if an employee works for an organization in New York, but resides in Tennessee, employers should treat them as though they are New York residents.
Again, we do not offer legal advice. Instead, we indicate leading concerns for readers to discuss with their legal counsel.
The main takeaway
Due to the rising potential of stagflation, inflation, and the changing economy, businesses are increasingly turning to layoffs. Today’s business leaders should take note of these layoffs and create a strategy for potential layoffs, should they become necessary. When thinking of a layoff, leaders should think about the jobs they are saving, not the jobs being lost as sometimes keeping all people in the life boat causes it to sink. When leading an organization through a season of layoffs or potential layoffs, skillful leaders have a strategy, lead with feelings (but are not ruled by feelings), and are knowledgeable about the legal considerations surrounding the subject.
Bergeron, P. (2022, June 7). With Unstable Economy, Hiring Freezes and Layoffs Could Be Looming. SHRM. https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/with-unstable-economy-hiring-freezes-and-layoffs-could-be-looming.aspx.
BusinesSolver. (2022). 2022 State of Workplace Empathy Executive Summary. https://resources.businessolver.com/2022_empathy_executive_summary?utm_medium=email&utm_source=hs_email.
Hartmans, A. (2022, July 26). A wave of layoffs is sweeping the US. Here are firms that have announced cuts so far, from Shopify to Tesla. Business Insider. https://www.businessinsider.com/layoffs-sweeping-the-us-these-are-the-companies-making-cuts-2022-5?international=true&r=US&IR=T#tesla-229-employees-1.
Knight, R. (2020, July 4). How to Manage Coronavirus Layoffs with Compassion. Harvard Business Review. https://hbr.org/2020/04/how-to-manage-coronavirus-layoffs-with-compassion.
Shepherd, L. (2022, July 22). Pandemic Makes Application of WARN Act More Complex. SHRM. https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/warn-act-compliance.aspx#:%7E:text=Employers%20must%20comply%20with%20federal,are%20making%20compliance%20more%20difficult.
Stanford. (n.d.). Coping with the Emotional Impact of a Layoff. Faculty Staff Help Center. https://helpcenter.stanford.edu/resources/work-related-resources/coping-emotional-impact-layoff#:%7E:text=Feeling%20anxious%20and%20depressed%2C%20having,and%2For%20mental%20health%20professional.
U.S. Department of Labor. (n.d.). Plant Closings and Layoffs | U.S. Department of Labor. https://www.dol.gov/general/topic/termination/plantclosings#:%7E:text=Worker%20Adjustment%20and%20Retraining%20Notification%20Act%20(WARN)%20(29%20USC,plant%20closings%20and%20mass%20layoffs.
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